“And shepherds we shall be, for Thee, my Lord, for Thee. Power hath descended forth from Thy hand, that our feet may swiftly carry out Thy command. So we shall flow a river forth to Thee and teeming with souls shall it ever be. E nomini patri, et Fili e spiritu sancti. “ This is the prayer made famous by the movie Boondock Saints. It precedes some serious violence every single time in their quest for justice if not coloring outside the lines.
You could convince me that Donny after an eggs benedict in the First Lady’s bedroom wakes up, recites that prayer, and grabs his phone while heading to Twitter. He wakes up in the First Lady’s bedroom because the current President’s bedroom was historically used as the First Lady’s quarters until the 1970’s. I do not know if going off the gold standard precipitated the change or the general wussification of men in general as the advent of wearing pink shirts and talking about your feelings began to be accepted. Either way, Trump sleeps with the ghosts of ladies whispering in his ear, don’t worry about Stormy, she is no Melania, but I digress.
Regardless, of whether he purposely decides to choose violence every morning in a wussified twitter sort of way, the result to the stock market has been violent. I was all prepared to talk about the cracks in the housing market this week, but when the Dow Jones is down 1100 points in one day and the Nasdaq drops 15% in 3 weeks duty calls. Sometimes you have to change horses in the middle of the race.
This from Stephen Collinson at CNN, “At first, Trump’s early-term energy on multiple fronts was a bolt of energy as he scratched his Sharpie across executive orders and chased away the lethargy that marked President Joe Biden’s waning months in office.
Six weeks in, however, as Trump makes gut-check calls to dismantle post-Cold War national security arrangements, the global free trade system, and the federal machine – all of which helped make the US a superpower – a new realization is dawning.
There doesn’t seem to be a plan.”
Here is what I think. Trump does have a plan and we need to understand the man and let it play out. He is the president, and he was elected to do whatever he wants to do. He is an egotist, a narcissist of the first order and yet I think he is playing for legacy which matters to him more than most. I wouldn’t trust him to balance my checkbook, but he has people around him that are super competent. I think they are scared of the debt. They are in his ear as well. That was the secret to Ronald Reagan’s success. Trump might add bluster and BS but if he can listen to the smart people around him, then he can be successful. I am strictly talking economically, I don’t think the candidates in other parts of his administration are nearly as strong as his economic talent. We don’t have to like the messenger to like the message.
Trump is trying to reset the global financial system because our debt agenda is unsustainable. The system that he knows, or he has been told, is broken. He will get no argument from me and we have wailed and talked through how difficult it will be to change it. The debt is so high, Congress is so used to spending money, and the American people are so apathetic about their own children and grandchildren’s financial lives that there is no impetus for change. We have discussed Triffin’s dilemma before and I won’t rehash it here, but the holder of the reserve currency status must eventually choose between the interests of their own domestic population and the international population. Trump has chosen domestic. That is the right choice as an American.
Trump has told Europe to pay for your own wars which is a great idea, he should tell Israel the same but Trump is bought and paid for by the Jewish community so that is doubtful. He is cozying up to Putin and trying to make peace even though he isn’t fighting a war with Putin. Putin represents one of the two other countries on earth that we should acknowledge as equals in the game of world domination so trying to make peace with Russia is wise. 2 out of 3 isn’t bad. If Trump can get Russia and China to ratchet down their military spending, then perhaps we can. This is all looked at through an economic lens and remember defense is $800 billion and we have to cut $2T to get back to budget even. If we can cut $1.4 trillion we can get back to Treasury Secretary Scott Bessent’s goal of 3%. That is too much for me but from where we are standing today it would be remarkable progress, let’s start there.
If Musk fires everyone in the federal government, he won’t get $2T. He is a circus clown on Twitter as well, but he has been known to run a tight ship and seems to be good at firing people. So, we have to do multiple cuts and multiple cuts in big enough buckets to help us. Social programs like social security, Medicare, Medicaid seem to be off the table at least for now. That leaves defense, which was previously thought to be unassailable, and the interest on the national debt as the two largest to start chopping. How? Well, if we make Europe pay for their own defense and other countries do the same, we can reduce the $800 billion gorilla. The military industrial complex will not like this and will fight it all the way, but here is the truth and I think Donny knows it. We can’t afford it anymore. Somewhere this merry group of financial marauders got fiscal religion, and I think they know the gig is up. The good thing about billionaires is that that do not want a reset, they want to fix the current to maintain the status quo.
If Trump can persuade Russia and China to ease tensions and we can all agree that more military spending isn’t the answer then we can make some real progress that would benefit all three economies. Russia is stretched because of the war in Ukraine, China has had a decade of no progress financially, and the US is only growing because of government spending. All three could use some fiscal relief and maybe Trump sees this as a way to get some dollars, remember he is fundraising, and this could benefit the big three. Each of the economies can put that money to work as they please domestically as both of those countries are in need of some home made stimulus as well. Lastly, we need to get the interest expense down from over $1T and accelerating and we need to do it fast. How?
Let’s examine how. We once had a contributor here with the name of just what we are going to get. Her name was Austerity Jones. Well, lo and behold, austerity is the word of the week.
Austerity- the condition of living without unnecessary things and without comfort, with limited money or goods, or a practice, habit, or experience that is typical of this.
Who better to lead us on this path than a bunch of hundred millionaires and billionaires. Remember, don’t hate the messenger. How are we going to get austerity you might ask? This is the country of spend spend spend. It’s easy. Take away the ability to spend.
Tariffs are a tax on the consumer, and they sound one hell of a lot better than tax hikes. They aren’t necessarily inflationary although they might lead to higher prices, it depends on whether the tariff costs are passed on and if they aren’t then businesses will see lower profit margins. As Warren Buffet said recently, the Tooth Fairy doesn’t pay them. What they do is reduce the amount of disposable income and the stuff that a consumer can buy aka austerity. Our standard of living is going to have to go down. The dollars in the system are flowing away from the consumer or the business and to the government. It is a tax.
That’s ok, in this situation because there is nothing we need in America more than less stupid buying and more government revenue. Consumers have spent enough, they just had stimulus checks, and PPE loans which were nothing but a government paycheck, and they had child checks for merely having kids. Everyone bought a boat, gambled it, went to Europe, stopped paying rent, their student loan, and their utility bills and there was no recourse. Recourse is here and he is dressed in an orange toupee. This will be unpopular but as necessary as a designated driver when the sorority girls have gotten into the Sauvignon Blanc.
This is time to swing back to the other side of the pendulum and that means, things will be tighter for awhile. Treasury Secretary has called it a detox from government spending and that is well put. If the government is going to spend less, then that means that the private sector will receive less. The government debt is the private sector’s credit and if you give the private sector enough credit eventually a bunch of that money will end up in the stock market. Logic dictates that when you take it away the market will not like it and that brings us to the screaming and complaining of the markets. This has been highly overdue and now we have just had the first little flick on the nose from the market. It wasn’t a punch, it wasn’t a bitch slap, it wasn’t even a stern handkerchief across the brow. It was just a little flick.
Why do I say this? I can’t remember who said this last week, but they were talking about a really good company like Wal-Mart or Costco and they said they had about a Price to Earnings ratio of around 50. He said they could drop 20% and the P/E ration would still be 40 and my blood chilled a bit. Put that way and knowing that historically P/E ratios are around 14 made me lose sleep and pray to Paul Volcker that things would be ok.
For example, Tesla has lost over 50% of its value in 3 months and the P/E is still 86. The implied earnings or denominator in all these stocks is crazy high as well. On average they earnings are supposed to be around 13% for the S&P 500. Yet company after company is coming out and giving not just conservative guidance but terrible guidance. Things are turing bad in the consumer, so bad for Tesla which is not selling cars, facing a backlash from its liberal base as Musk and Doge cut their friends’ jobs that Trump had to have a special Tesla car show in front of the White House where a bunch of Teslas were lined up and Trump said he was going to buy one. Here’s a news flash, Tesla is through. Musk’s other companies might be ok, but self driving is happening in Austin, and it is Uber and Waymo and not Tesla and by all accounts they aren’t close. Not a surprise as he over promises and underdelivers as regularly as a prune juice disciple does 7:35 am business on the porcelain throne. What happened on Tuesday? Musk announced he would double US production in two years. Who is going to buy them Elon? No one wants your cars, they aren’t good value. That is the whole problem. What happened to Tesla’s stock price on Wednesday after he said that? Up, almost 6% as the market will always lap up his comments as gospel, for some inexplicable reason. Yet we must again stress we will take any corruption he can cut out of the government while he is there and while Trump allows him to have a voice which I expect will not be much longer. Keep this in mind at all times. The man tasked with finding government waste and fraud is one of the largest recipients and beneficiaries of government spending in our country’s history. Perhaps he knows where to look for savings?
Trump and Musk are sowing instability into every fiber of the financial day. Tweets, firings, court decisions, car shows, and rocket explosions are what is leading the news. The American public is fascinated while the 10-year Treasury bond yield has dropped from 4.75 to 4.20%. The US Dollar has also been selling off massively as we were scraping the 110 ceiling on the .dxy and now we are at 103.50. This helps our exports be more competitive. Donny came out and said the unsayable this weekend as he said he wasn’t really watching the stock market. This is the right thing, but I think it caught the market off guard as the Trump put is a given considering how much he prided himself on the stock market in his first term. Now, perhaps he has matured or just listened to Bessent or Art Laffler who is on his economic team and they just keep saying, Don, do what you do as long as we get the long term rates down. Mortgage rate relief, refinancing relief, bank bond unrealized losses relief, and more are there to be had, but donny has to wreck the stock market to do it so he is blowing smoke and blustering and coming across as an idiot to everyone, but there might be a plan behind it all. I might be naïve but I know CNN doesn’t think he has a plan and they are of course jaded, I am trying not to be and decipher what it is he is doing. What he is doing is climbing on his chair and stepping up onto the table and urinating all over the Sunday afternoon potluck of a stock market. The question is does he have a plan?
What we need to do is examine where the market is going now, which is down and determine if this is only a correction? Yes, this could simply be all technical now. Continuing down from these levels is where the true pain starts to set in. A weird thing happened on Tuesday, the stock market was down and bonds were down as the 10 year Treasury rallied. If the Dow is down over 1% and the yields on the 10 year are sharply higher, that is poison. That is death. Equities down and bonds down and in theory if yields go higher real estate down as it in theory moves in the inverse direction of mortgage yields. That is the trifecta of American wealth so this relationship needs to be examined closer than any other. I can perhaps see their plan, but that doesn’t mean that I am positive it can work. We are in an awful bind here and that is why Trump’s behavior is so different than his first term.
Sincerely Yours,
C Thomas Printer
Also born on this date… the last kicker to win the NFL’s most valuable player Mark Mosely.
Thank you for listening today and you can find all of our articles and more on our website cthomasprinter.com.